I downloaded automod, unzipped and have a handful of files to ftp to my root folder. Taking the top example, the adm folder, if I drop that into root and agree to over write it appears that I will get a folder with 3 items in place of a folder with many many more. Are those not needed anymore? Or should I open the new adm folder and manually merge the contents?

everything inside the upload folder of the unzipped automod folder should be uploaded to root of forum correct, if you already had automod installed, it will ask you to overwrite existing similar files so yes, if you don't have automod installed, then when you ftp it shouldn't ask you to overwrite any files, because folders will be the same! so other files will still be there!